Swiss franc news - page 18
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CHF Into US Elections: A 'Great Opportunity' To Buy EUR/CHF Targeting 1.10
EUR/CHF failed to break above 1.10 in October. While in October EUR/CHF was driven down by the lower EUR/USD currency cross, November started with the panic surrounding the US election, which increased demand for the CHF as the safest among the European currencies. The fall in USD/CHF preceded the drop of EUR/CHF below 1.08 in the first days of November.
If our baseline scenario for the US election materialises, this is a great opportunity to position for an EUR/CHF return to above 1.10...That’s our forecast, against the worst-case scenario of 1.0650.
In case of a Trump win, expect further pressure on the CHF. However, in a worst-case scenario we should see the CHF underperform the JPY. While both the CHF and JPY are safe havens if US rates drop, the JPY should strengthen more. The CHF is still more than 15% overvalued against a basket of currencies, while the JPY is still slightly undervalued, especially against the USD (5-8%) by long-term models.
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Switzerland CPI Oct mm +0.1% vs +0.2% exp
Swiss October inflation report now out 7 Nov
Switzerland unemployment rate Oct SA 3.3% as exp
Switzerland October unemployment rate 8 Nov
CHF: Watching SNB For Ad-Hoc Intervention & Another Deposit Rate Cut
Our baseline scenario remains that the SNB's preferred policy tool is ad-hoc FX interventions to fend off currency appreciation while keeping the threat of further deposit rate cuts alive. However, we think the US election outcome has increased risks of another SNB deposit rate cut from -75bp currently to -100bp.
We believe the trigger of such a move will be the pace and persistence of currency interventions the SNB needs to run to avoid CHF appreciation. Weekly domestic sight deposits data will be our earliest indicator of SNB pressure. If they exceed peak increases since 2015, we think rate cuts could become a serious option.
Meanwhile, the Swiss government's deadline to implement laws to cut immigration by February 2017 is approaching. In principle, limiting EU immigration stands at odds with free movement of labor and could potentially damage Swiss-EU bilateral trade relations. The current draft is "preferential treatment light", essentially forcing Swiss employers to consider Swiss applicants, rather than setting hard caps. This draft will go through parliament before year-end. EU officials have notcommented yet; we believe risks remain.
....The SNB continues to reiterate its now well-worn mantra that the CHF is "significantly overvalued" and that it stands ready to intervene should circumstances dictate. These comments have ceased to have any meaningful impact and whileour own valuation metrics continue to view CHF as an overvalued currency, the analyst community has become less convinced the CHF is on the path to meaningful depreciation over the coming years. Chart5 highlights how analysts have progressively lowered their end 4Q17 and 4Q18 projections for EUR/CHF. In other words, the expectation of sustained CHF depreciation is now less of a consensus view than it was following abandonment of the EUR/CHF peg. While the contours of our own EUR/CHF profile looks for appreciation over the coming year, the anchor for that view is our fair value estimates suggest the CHF remains overvalued.
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USD/CHF Consolidating Near Recent Highs
USD/CHF is lower in today’s trading, currently holding near the 0.9860 level, down 0.06% from Thursday’s N.Y. close. The pair experienced a sharp 4-day advance and is now meeting resistance at the 61.8% retracement of the sell-off from the October high, which is calculated excluding the spike lower that took place in reaction to the U.S. Presidential election. A sustained breakout above this retracement would improve the probabilities of a retest of the October peak, just shy of the psychologically important 1.000 level.
A modest overbought condition has developed as a result of the 4-day run to the upside. Thus, a period of consolidation appears warranted. Holding Thursday’s low at 0.98167 in today’s session would keep the bias in the pair firmly to the upside and the target for next week’s trading at the October peak. A drop below Thursday’s low, however, would set the stage for a deeper pullback possibly to the 200-day moving average at 0.97667.
Continued dollar strength will benefit USD/CHF. The dollar is currently trading at 98.83, down just 0.03% from Thursday’s N.Y. close. The resilience of the dollar in the presence of what is now a fully overbought condition is a sign of underlying strength. Rate hike expectations have fluctuated recently given the outcome of the U.S. Presidential election. Continued expectations for an interest rate increase in December should support the dollar and drive USD/CHF to further gains over the near term. At present, fed fund futures are indicating a 71.5% probability of a rate hike at the December meeting.
On today’s U.S. economic calendar, University of Michigan Consumer Sentiment will be released at 10:00am ET. Consensus estimate for the preliminary November reading is for an increase to 89.5 from the final October reading at 87.2.
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USD/CHF Weekly Forecast November 14-18
USD/CHF dropped sharply in the early week as the US elections triggered demand for safe haven assets. A recovery in the second half of the week, however, served to erase not only losses from the early week but losses from the prior week as well.
USD/CHF briefly extended below a rising trendline that dates back to mid-2015 as there was a rush for safe have assets when it became apparent that Donald Trump would win the election. Sentiment reversed quickly, with renewed risk appetite ahead of the announcement of the election results.
There was communication from the Swiss National Bank ahead of the elections that the central bank was ready to intervene if the Swiss Franc were to appreciate excessively as a result of the election. The SNB have not confirmed or denied any involvement in the markets, opening up speculation as to whether the bank has acted. USD/CHF is seen trading relatively unchanged on the month, erasing earlier losses. EUR/CHF, a currency pair commonly referred to gauging Swiss strength, has moved comfortably below the 1.0800 level to negate speculation of an unofficial floor in the pair.
Safe-haven assets have shown reversals among several of the common instruments. Gold prices reversed in a similar manner as the Swiss Franc and closed the week out erasing losses from the prior three weeks and dropping below levels seen ahead of the EU referendum. USD/JPY reversed higher after an initial dip and is also trading near levels ahead of the UK vote.
USD/CHF is lagging behind the US Dollar index (DXY) in the past week. DXY has erased losses from the prior two weeks to trade at prior highs posted in late October while USD/CHF has erased about 70% of the losses since similar highs in late October. Despite the lag, the currency pair has posted a bullish engulfing candle to set a constructive tone for the upcoming week.
USD/CHF Moves Sharply Higher on Dollar Strength
USD/CHF appeared to be setting up for a near term pullback with Friday’s consolidation near the recent highs, but instead has kicked off the week with a strong move to the upside. The pair is currently trading near the 0.9973 level, up roughly 1% from Friday’s close.
As a result of today’s move higher, the pair is approaching resistance at the late October peak at 0.99989, near the psychologically important 1.000 level. The combination of the approach of this resistance and the pair’s extreme overbought condition could result in another near term period of consolidation.
Given the steep trajectory of the advance from the November low, support on a move to the downside is limited. Thus, should the pair turn lower, Fibonacci retracements of the recent move higher will be looked to as potential support. In addition, the 0.98500 level could have support value on a move to the downside.
However, given the firm tone of the dollar and the ongoing increasing expectations for an interest rate increase in December in the wake of the election of Donald Trump as the next U.S. President, any near term setback in USD/CHF should prove to be limited. At the end of last week, fund fed futures were pricing in an 81.5% probability of an interest rate increase in December, up from 71.5% pre-election. Trump’s administration is expected to boost public spending and lift inflation.
Should USD/CHF maintain a firm tone and surpass the 1.000 level, the next level of resistance is at the zone defined by the late February and March 10 highs at the 1.00380-1.00925 area. On a breakout above 1.000, this level should reverse roles and offer support to keep the bullish implications of the breakout intact.
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SNB Remains Active And Should Keep A Floor Below EUR/CHF
Although the SNB did not confirm any involvement in the market it comes as a fair assumption that the central bank did limit any downside to EUR/CHF.
This comes as no surprise after SNB board member Maechler already indicated that any currency in reaction to any adverse political developments will be fought. Keeping in mind that the overvaluation of the currency is regarded as the main cause of keeping monetary conditions too tight and therefore preventing inflation from improving sustainably, we seem limited scope of this to change anytime soon. This in turn should keep a floor below EUR/CHF.
Given more favourable policy differentials majors such as USD/CHF may be poised to retest parity and break above soon, especially if global risk sentiment were to improve further as we expect.
In terms of domestic events the main focus will be on speeches. SNB’s Maechler will once again speak and he is likely to defend the need to maintain an aggressive policy stance.
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Swiss ZEW Survey Hits 5-Month High
The Swiss ZEW business confidence index strengthened to 8.9 for November from 5.2 the previous month and this was the strongest reading for 5 months after three consecutive monthly gains.
In contrast, there was a decline in the current conditions to 14.7 from 17.9 previously.
Close to 75% of survey respondents expect the economic development to be unchanged over the next six months, while 85% of the survey’s replies indicated that the economic situation is normal.
There was a further significant increase in inflation expectations to 61.8 from 51.2 previously and there were no expectations that short-term interest rates would decline further.
There were expectations that the franc would weaken, although this has been a consistent theme in the survey over the past six months.
The survey results are unlikely to have a significant impact on the short-term outlook, especially given expectations that the US Presidential election will have a significant impact on the global political and economic outlook.
The National Bank will continue to monitor franc developments closely with further concerns surrounding the overall Eurozone trends with the risk that political tensions will trigger a fresh Euro slide, which would tend to upward pressure on the franc.
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CHF: The 'Struggle To Juggle': Where To Target?
As we detailed, we believe EURUSD is back on the road towards parity over the longer term.
The Swiss franc is likely to be stretched in two directions as a result of these two opposing forces on the EUR and the USD legs of this global equation; with EURCHF likely to fall while USDCHF rises.
Consequently we revise our EURCHF forecasts to 1.05 in 3 months (from 1.09 previously), and 1.04 in 12 months (from 1.07 previously).
Meanwhile USDCHF should to push higher towards 1.02 in 3 months (from our previous target of 1.03) and 1.04 in 12 months (from 1.01 before).
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